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Larceny Often Starts with the Credit Card Charges
Auditors suspecting fraud often start by analyzing the credit card charges of those who are in a position to perpetuate fraud. Why? The person stealing from the business entity often starts small and they often start where it is easiest to steal. Falsifying credit card charges is the easiest place to start.
On one audit, I was analyzing credit card charges. The company president took three people to dinner and wrote their names on the credit card slip. I knew it was fraudulent because one of the people listed on the slip was me, and I knew I had not been there. I then checked and found the date was a Saturday night. When confronted, the company president admitted that he had taken personal friends to dinner and charged the evening to the company.
Once you find fraud in the credit card charges, you can look at other places where that person could have perpetuated fraud.
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Kiting is a very old scheme and is not as likely to happen as it once was, but any entity with multiple bank accounts should be aware of the possibility. For kiting to work, an individual must have complete authority over two or more bank accounts. The perpetrator must be able to sign and draw checks and must be the person reconciling the bank accounts.
The fraud starts when the perpetrator drafts a check on Bank A for a large amount (let’s say $50,000) and deposits it in Bank B. Before the funds clear, he draws a check for $50,000 on Bank B and deposits it in Bank A. The drawing of checks continues until a large float occurs. The perpetrator then siphons off a substantial balance of cash and deposits it in his own account to earn interest. The scheme can continue indefinitely as long as enough checks are drawn and deposited. The checks are never recorded on the books of the entity and the perpetrator destroys the bogus checks when they are returned with the bank statement. The best way to prevent kiting is never to give an individual the authority to sign checks and to reconcile cash. If kiting has occurred, it will be caught if the perpetrator has to take vacation for an extended period. A proof of cash will also catch kiting.
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Americans will soon start putting together the information for filing their 2009 income tax returns. Perhaps you’ve started already. Unfortunately, the requirement to file income tax returns has provided some individuals with an opportunity to defraud unsuspecting victims. These fraudsters advertise themselves as tax preparers and lure their victims with untrue promises, such as a guarantee that they will obtain large refunds for any taxpayers that use their services. They appear to keep their promises by preparing fraudulent returns that show that the taxpayers are due a refund when in fact they are not or by overstating the amount of a refund that is due. They achieve these fraudulent requests for refunds by taking phony deductions, underreporting income and claiming credits that the taxpayers are not entitled to. Sometimes they even claim credits that do not even exist.
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Forensic Accounting Firm
Offices in Bethesda, Maryland/Washington DC and Alexandria Virginia
presented by Bond Beebe, forensic accountants
Hello everyone, and welcome to the Forensic Accounting Blog sponsored by Bond Beebe, a Washington, DC based forensic accounting firm of certified public accountants and certified fraud examiners, with offices in Maryland and Virginia We have started this blog to provide a forum to talk about fraud, forensic accounting, forensic investigations, litigation support and their many related issues. As a firm of certified public accountants, we at Bond Beebe constantly deal with the possibility of fraud, whether performing services as auditors, tax specialists or management advisors. And, as forensic accountants, investigators, and advisors, we strive to assist our clients in the detection and prevention of fraud. So, we have set up this site to express our views and pass along information that we hope will be of interest to readers and participants. For more information on forensic accounting, please click here: Forensic Accounting
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